5 Myths About Buying A House For “Pennies On The Dollar”

Pennies On The Dollar RealtyTrac.com CEO Reports “The lack of understanding can foster foreclosure myths that are dangerous both for homeowners who want to avoid foreclosure and buyers interested in purchasing a foreclosure.”

Walking into the real estate market in today’s conditions to buy a house may leave you with many unanswered questions. Television, newspaper, Internet articles, and even so called real estate gurus are telling you this is the time to buy houses for “pennies on the dollar”. What most buyers do not understand is that getting huge discounts on properties may be farther from the truth than what they are led to believe.

What does it mean to buy houses for “pennies on the dollar”?

This is a phrase used by most savvy sales people trying to sell an idea of false hope. They claim, after buying their material, they can show you how to buy houses in tax sales or through sheriff sales, short sales, or foreclosures for a fraction of the market price.

Here are 5 myths for buying a house for “pennies on the dollar”.

Myth #1 - Bank owned REOs or foreclosed houses sell at massive discounts.

So what constitutes a massive discount? The better question is for the amount of work needed to make a bank owned home livable, what do I have to reduce the price of the home by? Most bank owned homes will sell for discounts, but the discount will only justify that amount of work that is needed to get the property to fair market condition. A bank wants to get top dollar and will not discount a property fifty thousand that only needs minor painting.

Myth #2 - I can get homes cheap by “low balling” a short sale and my offer will get approved.

Trying this technique will not only be wasting your time, but the time of the Realtor, the seller, and the bank involved. In the last couple years short sales have evolved into a process where the banks, just like when they are selling REOs, do not like to leave money on the table. Our experience shows banks will discount short sales only by a small percentage. They may have given larger discounts a few years back when the volume and ideas of short sale processing were relatively new, but now new processes have become more strict on approving short sale low ball offers.

Myth #3 - If I buy a house through a tax sale or sheriff sale, I can get a house for “pennies on the dollar”.

Tax sales may be one of the riskiest types of purchases when buying a house. The primary downfall of buying houses through a tax sale is most properties are not of any value. The reason for this is if the house had value or a first or second mortgage, banks pay off the taxes and apply the balance to the loan. Banks have an incentive to do this because at a tax sale their mortgage can be wiped out leaving them to lose their entire loan amount.

Sheriff sales are not any easier. The problem with sheriff sales is when there are extra liens, mortgages, judgements, back taxes, or city letters against the house, none of these items are disclosed. When buying a sheriff sale you have to make sure you do your due diligence to make sure you don’t buy a property with any baggage attached. This means paying for a title search from a title company before even knowing if you will get the house.

Myth #4 - Buying a house for “pennies on the dollar” can be done using my bank or government loan.

When looking at foreclosures available to buy, you will find every home in a different condition. In order for your bank or government loan program to approve that property to buy, it has to be in a certain condition that follows their loan guidelines. A bank will typically not approve the loan if there are issues such as chipping paint, structural issues, mechanical issues like electrical, plumbing, or heating, and major cosmetic problems. Banks understand that without cash and experienced people doing the work, a house that needs major rehabbing is a very risky loan for them.

Myth #5 - I can make tons of money when buying foreclosed homes on a quick resale.

In order to understand how to make money fast in foreclosures, one has to know that real estate is not a get rich quick game. Many real estate gurus like to state that you can make tens of thousands in your first month, but the reality of this is far from the truth. Buying a foreclosure thinking you will make tons of money is not a good reason to consider buying a house. Using this logic will only cause the reverse effect which is problems, headaches, and possibly losing money. In order to buy houses at a discount, you will have to do a lot of research and have quite a bit of time, money, and energy tied up into the process before even making your first purchase. Real estate is more of a long term secure investment that will pay off in the future if done correctly.

In conclusion, buying a house for “pennies on the dollar” may be a concept that seems enticing when you are looking at buying a house, but the idea of getting that unbelievable deal may be easier said then done. Discounted houses are discounted for a reason. They will need time, money, and energy in order to increase the value. Deals are out there though and you may be able to get a great property, but just not for the same fraction of the cost you have been led to believe.

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5 Myths About Buying A House For “Pennies On The Dollar”

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